EDITOR NOTE: Most people would agree that 2020 was by and large an awful year. The immediate issues that affected us rather deeply are well-known among most, if only through personal experience. Beneath the surface, however, other things lurked unnoticed. For instance, there are plenty of graphs in the article below breaking down the out-of-sync rhythms in the overall trade mix. Just take a look at the graphs illustrating the difference between Canada and China, and you’ll immediately see what we mean. There is a trade “surplus” in petroleum products, a positive. But overall, that wasn’t enough to compensate for the discordant factors that make the trade deficit “horrifically terrible.” The government supplied Americans with a decent amount of stimulus money, enough to buy “imported” goods that were more expensive because of the dollar’s depreciation. Unless you own safe haven assets like non-CUSIP gold or silver, you can expect the cost of your mostly-imported goods to rise as your purchasing power sinks.
The US trade deficit in goods worsened by 6% in 2020, to $916 billion, the biggest and worst ever. Exports of goods plunged by 13.2% to $1.43 trillion, the worst since 2010. Imports of goods during the year fell by 6.6% to $2.35 trillion.
Half of the decline of imports was driven by an $80 billion or 38% plunge in imports of petroleum and petroleum products, to $127 billion, the lowest since 2002, caused by the collapse in crude oil prices, the collapse in demand, and US production from fracking. Combined with US exports of petroleum and petroleum products, it produced the first annual US petroleum trade surplus ($18 billion) on record, according to data by the Commerce Department.
US exports to the rest of the world add to GDP, and US imports are a negative for GDP. Every country wants to export itself out of trouble. And the US has been eager to make this possible for other countries – driven largely by Corporate America’s three-decade binge to globalize its supply chains to fatten up its profit margins.
The US services trade surplus in 2020 plunged by 17.5% to $237 billion, the lowest services surplus since 2012. Imports of services plunged by 21.8% to $460 billion; and exports of services – which include spending by foreign tourists and students in the US – plunged by 20.4% to $697 billion. This was the second year in a row of declining services surplus.
The total trade deficit of goods and services worsened by 17.7% to $679 billion, the worst since 2008. The chart below shows the total trade deficit in goods and services (red columns), the trade deficit in goods (black line) and the trade surplus in services (green line):
The Goods Trade Deficit, by Country.
Below are the 14 countries plus the European Union (yellow bar) with which the US has the largest trade deficits in goods. The opaque nature of international trade transactions, such as trans-shipments, trade invoicing via third countries, tax dodging, etc., can produce peculiar results, particularly with small countries such as Switzerland and Ireland, as you can see below. Compared to 2019, the trade deficit:
- With China & Hong Kong fell by 7.8% to $295 billion (more on that in a moment).
- With Mexico rose by 10.8%.
- With Germany fell by 14.9%.
- With Japan fell by 20%, which put it below the trade deficits with Ireland and Switzerland for the first time.
- With Ireland rose by 5.7%.
- With Switzerland jumped by 111%, which put the tiny country on par with Germany.
- With Canada fell 44% to just $15 billion, with large volumes imports and exports nearly in balance.
Imports and Exports of Goods, by Country.
The chart below shows US imports from (red) and exports to (black) the major trading partners, plus the EU, in order of the magnitude of imports. The trade relationship with China is the most out of whack; the trade relationship with Canada is the most in balance, with just a small difference between imports and exports:
The Goods Trade Deficit with China & Hong Kong.
Imports from China and Hong Kong combined fell by 2.8% in 2020 to $443 billion, the second year in a row of declines (red columns below). Some of the imports have been rerouted via Vietnam and other countries. Nevertheless, that’s a big improvement.
Exports to China and Hong Kong rose by 8.3% from 2019 – which had been the worst year since 2010 – to $148.6 billion, roughly on par with 2012 (green columns). So there has been no improvement in exports to China since 2012.
The goods trade deficit (exports minus imports) with China and Hong Kong improved, or rather became a little less horrifically terrible, for the second year in a row. And at $295 billion, it was the least terrible trade deficit since 2013 (black line):
The year 2020 was a milestone in the sordid history of the long-running US trade deficits in that the goods trade deficit set a new historic most terrible record, despite a 38% collapse in imports of petroleum and petroleum products, and despite the first-ever petroleum trade surplus. As the rest of the world cut back on buying US goods, US consumers were doused with government money, and they switched from buying services — from haircuts to plane tickets — to buying goods, a large portion of which was imported.
Originally posted on Wolfstreet